SCOTTSDALE, Ariz. – Credit unions and banks alike are increasingly competing for the same consumers with the same products, and the commoditization is reaching into the back shop as well, according to the consultants at Cornerstone Advisors. In the firm's just released "The Cornerstone Report: Benchmarks and Best Practices for Mid-Size Banks 2005," an annual study of more than 60 mid-size banks and large credit unions shows financial institutions "doing a sound job of controlling infrastructure spending, even slightly decreasing it, by [among other things] standardizing network and desktop operating systems." The commoditization of processes and products is reflected, the report says, in the continuing "precipitous decline" of spending on core data processing as a percent of assets, in this case to .068% in 2005 from .077% in 2004 and 0.90% in 2002. Core processing, in fact, is "now almost universally considered by the market to be a commodity," the Cornerstone report says, and that means credit unions pressuring their core technology provider for a price break will hardly be alone. In turn, the marketplace is responding, according to Cornerstone (www.crnrstone.com), whose specialties include helping financial institutions pick and price technology services. "Core vendors are also increasingly using price for leverage to retain clients as contracts approach renewal time, sometimes well before then," the report says. "We see nothing to suggest that this fall in core spending will slow in the short term." As for what's happening at the desktop level, the report found that the old DOS-based green screen continues to slowly but surely fade away, with nine of the surveyed institutions saying they had no DOS-based implementations at all, compared with only one that said that two years ago. The migration to Windows XP also has been completed at 30% of the responding institutions, leaving behind mixed Windows 98, 2000 and XP environments, with many of the respondents also waiting for the new operating system, codenamed Longhorn, to be released and stabilized. Browser-based systems, meanwhile, continue to grow in use by leaps and bounds, with the average growth rate in deployment of browser technology at 106% in the past two years among the financial institutions surveyed. Meanwhile, interest in some of the leading edges of financial service delivery seems to be dulled. For example, "in 2005, not a single respondent reported having deployed wireless banking," the report says. And nearly two-thirds of the respondents consolidate customer and member relationships in their CIF systems. "CIF is the logical place to perform consolidation and large-scale CRM and data warehouse projects are on the decline," the consultancy wrote. Growth areas? Disaster recovery is one headline there. "The time and effort dedicated to disaster recovery will markedly increase as its importance is recognized by more non-technical senior managers and board members and pushed harder by regulators," the Cornerstone report says, with the use of weather-proof "extremely remote backup sites" several hundred miles from the financial institution's center growing in popularity. The 91-page report, which sells for $575, centers on 150 best practices Cornerstone Advisors says can help credit unions and mid-size banks follow the "parallel and equally important paths" of operational excellence and strategic differentiation. "Can operational excellence fund strategic differentiation? Is there any limit to the upside if it can?" the report asks in conclusion. "We can't wait to find out." -

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